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When you set out on the road to financial success, nobody told you that it was full of potholes. But that’s exactly what taking big financial steps is all about — avoiding the obstructions.
From buying your first home to starting a family, there are a lot of chances to spend way too much, owe more than you can imagine, and lose money along the way. Setbacks are inevitable sometimes, but here’s how you can make them less likely.
Here’s a financial pitfall that is easy to slip into and hard to get out of. Most young adults get their first credit cards as early as age 18, and with the education costs that most of them incur, it can become difficult not to pile up debt. However, there’s one major incentive to avoid using a credit card like a magical money fairy: your credit score.
While other kinds of debt, such as a mortgage or student loan debt, are viewed as investments in your future self (and yes, you do have a “future self”), credit card debt is viewed more like a sinking weight. It’s hard to untie yourself from because of interest charges, so it’s best to keep it from getting out of control in the first place. To do this, you should consider transacting in cash only for your everyday purchases; this will help you avoid the trap of “buying now, paying later” which often leads consumers to think that they have spent less money than they actually have.
Children are a gift. At least, that’s what you think before you actually have any of your own. While starting and growing a family is one of life’s greatest fulfillments, it is also very expensive. The United States Department of Agriculture has calculated that raising a child from birth to age 18 costs an average of $227,000 (USD). That might be a bit more than you bargained for.
Luckily, there are ways to reduce this figure that don’t involve indentured servitude. Most of the cost for raising children comes from ordinary expenses such as childcare, transportation, and food. You can work with your family to come up with a plan that saves your household money, such as asking a grandparent to care for children while you are at work instead of paying thousands of dollars a year in day-care. And you can reduce your food bill by couponing, buying items in bulk, and shopping at the local farmer’s market to find cheaper (and healthier) produce.
Buying a Home
And because once you start a family, you’ll want a place to call your own, you may also have to grapple with real estate jargon to find the best mortgage rates. Surprisingly, most of the steps you can take to make buying a home more financially feasible for you should happen well before you even check out the housing market. Things like maintaining good credit (see “Avoiding Credit Card Debt”) and saving up money are common sense behaviors, but their importance makes them worth reiterating.
Also, when you strike out on the housing market, you should play it savvy. Remember to shop around for a lender who is willing to help you finance your home; don’t just take the first offer you receive. This will boost your negotiating power, which could lead to you paying fewer administrative costs when you sign the contract. You can approach pricing negotiations in the same way. Sellers set a price for their homes, but that doesn’t necessarily mean that’s what you should pay for it. Try to get the seller to pay for a few mortgage points upfront for you instead of knocking ten thousand dollars off the asking price, for example.
This isn’t a complete guide to not going broke in life. Those don’t actually exist, which means that you’ll just have to learn the rules (or make them up) as you go along. However, the more prepared you are for those potential setbacks, the better chance you’ll have at avoiding them when you take a big financial step.
What are the biggest financial potholes you’ve encountered so far in life? How did you deal with them? Or has it been miraculously smooth sailing?